Thoughts on business school, economics, NC State, and everyday life from an economist at NC State's business school

Sunday, February 20, 2011

Is the corporate income tax holding back the recovery?

So claimed KPMG CEO John Veihmeyer at his Wachovia lecture at NC State two weeks ago. Two WSJ articles over the last week continue this theme. Jason Zweig notes in his Intellligent Investor column that companies have more than $2 trillion in cash sitting idle overseas. But to repatriate those earnings and invest them in the US, most firms would have to kiss about 35% of the money goodbye. This tax distortion creates an incentive to hold excess cash in the hopes the tax rate will fall or to invest the money overseas.

My Harvard macro professor Marty Feldstein points out additional complications in an op-ed piece. The US rate is higher than any other developed country not named Japan, so the tax retards foreign investment in the US and encourages US investment overseas. High corporate taxes mean that capital is over-allocated to other sectors, including housing.

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About Me

Steve Allen is Associate Dean for Graduate Programs and Research in the College of Management at NC State University. He has appointments in the Department of Economics as well as the Department of Management, Innovation, and Entrepreneurship. Steve also is a Research Associate of the National Bureau of Economic Research, a non-profit research organization located in Cambridge, Mass.